Evercore Analyst Mahaney's Guide to Tech Investing

are really popular. Through the two thousand's, BlackBerry was out there, my Space was launched, an oh three Facebook and oh four. I mean that was kind of the stuff he was working around. We're talking about Mark Mahaney, Senior Managing Director and head of Internet Research at ever Core. I s I a familiar name to anyone who's listening right now. Mark. In the book you talk about the hundreds of interviews that you've done, the more than one thousand when it

comes to print. What made you want to write a book? I had something I've actually been wanting to do for a couple of years, just kind of a personal um journey, if you will. I've been looking at the internet stocks and tech stocks for twenty five years, and I wanted to try to put some kind of big term, big level thoughts, high level thoughts I had down on paper. But there was two other things. One is that you know, we saw this surge in new investors come into the

market in the last two years. I think it's something like fifteen million accounts, a lot of a lot of tho robin Hood, but other ways to other places too. And I just I thought that there needed to be kind of a book that would help them introduce them to how to invest in tech high growth stocks, sort of in the same way that Peter Lynches went up on Wall Street did a phenomenal job of that forty years ago. I thought there needed there was a need for something more, more, you know, more up to date,

for for for newer investors. And then I guess the last thing, my last drive here was I saw too many institutional investors too, but also retail investors look to trade in what I thought were high quality investible names and um so I was in a way trying to remind people there are there are hazards in investing and trading, but there are you can get dramatic returns if you invest, you know, with with luck and with skill and with patients for the long term in high quality names, and

that was probably the most important lesson that I learned from the last twenty five years. Some of the fundamentals follow. Stock prices follow fundamentals. You get the fundamentals right, and you can have a very good portfolio. So that that was the last kind of real driver for me. Well, it really is a great lesson book, playbook if you will. And the title of the book nothing but net ten timeless stock picking lessons from one of Wall Street's top

tech analysts, Mark Mhaney. So let's talk about some of those lessons, because, uh, these are things that I feel like we talk about day in and day out at Bloomberg in terms of do you focus on revenues, you talk about earnings, girls, you talk about margins. Tell us some of the lessons. Well, I'm going to start off with one one warning and then one good piece of news. So the one warning is again, these markets are aorries faltil, and even the best stocks, even the best franchises, can

underperform for periods of time. They will get dislocated. You know, I think about these wonderful names that combined for this acronym called fang, Facebook, games on Netflix and Google. You look at those stocks, they've each had twenty to thirty even as much as forty corrections over the last two, five and ten years, despite being dramatic market performers. So kind of lesson number one warning to us all. You know, we've had a pretty robust equity market for the last

decade or so. So I just want to make sure we highlight the risks. But now let me highlight the reward. If there's one acronym, if there's one thing I want people to get from the book, it's the acronym d h Q. Now not dairy Queen d Q, but d h Q, which stands for dislocated high quality companies. If you're investing in the market, you want to do two things. You want to mitigate valuation with risk, and you want

to mitigate fundamentals risk. Valuation risk is, you know, buying a stock that is multiple is too high, and the fundamental's risk is buying a company and then watching it blow up a revenue growth sharply decelerate, margins collapse, etcetera. The way to hedge that second risk, that fundamental's risk,

is to focus on high quality names. So I spent a fair amount of time in the book looking at things like to addressable markets, management skill especially a products, successful product innovation, and really strong customer value props or propositions. You put that package together, those four things that will create a high quality company and which you want to

do and hedging both of those risks. Identify the high quality companies and then wait for that dislocation, wait for them to trade out twenty or and then buy or add the positions. That's the single best piece of advice I had in the book, right. I love the idea about the volatility. I mean, I feel like we we talk about that, we try to get our heads around whether it's a name like Tesla, which can be it's been on such a terror but yet can go through

a pretty significant correction. It sounds like, you know, sometimes you just got to write it out. Yeah, you just need to be patient long term investor and really focus on fundamentals. And I want to get that nail across that point. Stocks follow fundamentals. The bigger company gets in terms of revenue and cash flows, the higher the stock price over for long term investors to hire the stock price and almost always has played out and even in the most vaultil of sectors that you could look at,

which is what I've done consumer Internet mark. You start out your book by writing that you're the oldest and longest lasting Internet analysts on Wall Street? Where did what has kept you in the job for this amount of time because you've certainly could have gone and worked a lot of places. M Well, I I enjoy the work and uh, and I'm lucky to be covering a sector

that's extremely dynamic. If you were going to spend the last twenty five years working on Wall Street, you know you would want to to have either covered Internet stocks, invested in Internet stocks, maybe software. Those are the kind of the two areas that have been the most nonst dynamic in terms of also new companies coming in. I mean, the Internet created three of the largest world you know cap companies in the world, Amazon, Facebook and Google, and

by the way, Microsoft and Apple. The reason that they are where they are is because they've created wonderful services, product devices for accessing and utilizing the Internet. So it's really been I've been lucky to kind of stumble. It was a timing thing. I got lucky and stumbled into

the Internet. Not at the very beginning. I was in the smartest out goore, but I got in there really kind of it near the beginning of the commercial Internet, and it's been just phenomenal and fascinating to watch these companies grow. Got thirty seconds and then we're gonna do some more. But is the metaverse the next step of the Internet in some way? I don't know, but I absolutely think that you want to be long and name like Facebook because of its core business, but because it's

also building what's likely option value? No, it is option value in terms of its investment in the metaverse. Uh, you know, Like I like to see large platforms have these kind of long term bets like Google with autonomous vehicles and weymo. This is Facebook's long term bet. Given the amount of money that they're putting into it and the resources. My guess is that there's a there there and investors are going to appreciate it five years down the road. All right, Mark, hang on for a second.

We're going to come back with you in just a moment. Mark Mahaney over at ever Car i sis new book, Nothing but net ten Timeless stock picking lessons from one of Wall Street's top tech analysts he's going to continue being our guests. In just a moment. He does have an outperform on Facebook at four and thirty dollars. This is Bloomberg. I want to get back to her. Guest still with us is Mark Mhaney, Senior Managing Director, head

of Internet Research over at ever Core. I s I he's got a new book out, Nothing but net ten timeless stock picking lessons from one of Wall Street's top tech analysts. He really is a top tech analysts. You might remember. Institutional Investor for his research has included him among their top analysts. Uh for many many years, top three ranked analysts for I think thirteen years and five years as a number one ranked analysts. So this is why we care what he has to say. Mark, still

with us on the phone. So, Mark, one thing I wanted to ask you. Um in your book, you talk you talk about importance of management, You talk about you know, having a product, You talk about revenues over earnings. Like, how do we need to think about some of these companies that are starting out. Uh? We look at Rivan that I p o UM. Is it a car company? Is it a tech company? Uh? It's not expected to be profitable for some time or really ampa production for some time. Um, how do we need to look at

these How do you look at companies like that? I know it's not an Internet company, but that's right. So I what I tried to do, Carol, is I really try to focus on this framework. You know, there's three or four five things I'm really looking for in a company. Now. There can be plenty of trading opportunities, but to really be kind of a good low core long term investment

that takes something else. And you know, by the way, even these great assets like Amazon today, I don't think that was a good core long term investments until something like two thousand and six, two thousand and seven, when they showed they could innovate in multiple areas, go from being an online book retailer to generating or building or really almost inventing could the commercial cloud industry and then rolling out these kindle products. You look for those kind

of proof points. But you know, if I if I check off the list, it's one look for companies that are facing large tams total addressable markets. Uh. Secondly, you look for companies with just great management teams. I know that's a easy statement to say, So what does it really mean? You're looking for companies with great vision, like read Hastings into launching this company called Netflix, which kind of conjures up streaming over the internet, except you couldn't

have streamed anything over the internet. At least it would have taken you hours to download the first five minutes of Terminator back then. But he had the vision to know that ten years from then, you know, the business would go streaming. People would stream video over the internet. So you look at that kind of industry, of that vision from CEOs, you look for companies. Third, that can

be successful with product innovation. There's a st there's a saying in finance that past performances no indicator or future performance. I don't think that's true when it comes to management and UH and product innovation. Companies that show you a track record or being able to do two or three really good product innovations, you stick with them. And finally, you focus on companies that have got compelling value propositions.

You know, companies that put customers ahead of investors. And there's two examples I write about in detail in the book. I'll just click on them here. One is grub Hub versus door Dash and the others, and Muson versus eBay. In both of those cases, the company with the inferior business model, but the superior customer value proposition. In the case of Amazon, price selection and convenience for consumers, that

company one. So you look for these companies that you know are investing for the long term to satisfy customers, even if that means disappointing Wall Street near term, they can be better long term winners. Hey, Mark, you mentioned in your book too that you've gotten to know a lot of the executives that these companies over the less twenty five years, some better than others. Which single person is the most transformative when it comes to building and

leading a business? Well, it's kind of hard to argue, uh with Jeff Bezos just um, you know what what uh He's he is the entrepreneur of of that generation. Let's say that that you know from two thousand to two thousand twenty singularly most impressive entrepreneur. Now, Elon Musk may well be the one of this next generation. But for somebody to succeed in such different industries, and we're talking about online retail, we're talking about on now, online advertising,

we're talking about cloud computing. I mean, those are industries with dramatically different competencies, and so the ability of that person, you know, the founder, and it's a management team, and of course is the employee base. But to succeed in those in businesses as different and diverse is that that's truly impressive. So it's kind of hard not to not to not to pick Bezos for that. No, I think a lot of people would agree with you. So then

what do we do? Mark, So we know he's still chairman of his company, but Andy Jesse is now in charge as chief executive officers. So do we get a little nervous that Amazon will not be the visionary company that it's been because Jeff Bezos is stepping back. It's a good question, Carol. I think we absolutely should be at the margin a little nervous. Andy Jess We're gonna,

you know, judge him over the next five years. The advantage that Amazon shareholders have is that Jass really worked at at Basos aside for I think it was eighteen or nineteen years. I met Andy along the way as he was building up a w S. By the way, the fact that he helped develop, deliver, build a WUS, which is now probably half the value of Amazon. The fact that he did that, I mean, he's essentially run a company in the past, so I think his organizational chops,

his operational chops, are really well known. Whether he has the ability that Basos had, which so few entrepreneurs really have jobs a musk to really look around corners and figure out new industries. Not new products, but I'm talking about new industries. I don't know whether Jesse has that or not. I don't think it matters to Amazon shareholders in the next two to five years. It would matter beyond that. So I think the jury is going to

be out for a while on Jesse. All Right, we have to ask you, Zello, because man, this has been an interesting story to watch. I know you cover it. Uh. I believe you downgraded it from I think out performed to inline um after the company said it's exiting it basically it's house flipping business. How do you still like it though? No? I I downgraded it and in fact but didn't put a cell rating on it. No, No,

you're right, I did not care. If you're right, um, the I think there is an interesting core business there. You know, if you when you publish something at UM all of a sudden, you've once it's out there, it's all there. You can't retract it. Well. In that book, I talked about the Zillo pivot, and I talked to as example of a company that I thought was a founder led company. They when they went into the I

binne market. The only reason they did that We're able to do that is that they had the founder come back and say we have to do this, even though it was going to be punished near turn by Wall Street for taking on excess risk. And UM, I really thought that they had a shot at the I binne market. It's rare I've seen a company sort of implode is too strong before ward miss execute on a new business initiative in the way that Zillo has in the last six months. I'm not throwing shade at them. I mean

they deserve criticism. I'll criticized myself to ad to buy in the stock, so I made a mistake there too. I still think that the core business is is attractive. I think that stock is going to be in the in the wood shed for you know, six months, maybe twelve months. I think out of that there will be

an interesting business. UM but that's the case of a company that you know, Like, what was so impressive of about Bezos is that he went into multiple different industries and he did still tried to do the same thing, and they didn't succeed in the second one. They're still okaying that first one. It was overstretched and misse execution. It's unfortunate and I got that call wrong, but it was a fascinating example of of, you know, the pitfalls

of tech investing. Mark Mahaney, you have a open invitation anytime you want to come back to talk more about your book and just your philosophy and thoughts about your space, because this has been so much fun. Mark Mhoney, ever care I saw his book is nothing but net tent Time. The stock picking lessons from one of Wall Street's top tech Alice